When it comes to filing taxes, most Americans share a common fear — receiving a notice from the IRS informing them they’ve been selected for an audit. For many, this fear comes from not knowing what actions, mistakes, or patterns in their tax returns could catch the IRS’s attention. If you’re not aware of the red flags that could trigger an IRS audit, you might unknowingly put yourself at risk, even if you believe you’re filing honestly.
The IRS uses sophisticated software and criteria to identify suspicious returns, and even honest mistakes can land your tax return on their audit list. Knowing what the IRS looks for — and how to avoid those missteps — is essential for staying compliant and stress-free during tax season.
In this article, we’ll break down the top 10 IRS audit red flags you need to watch out for, plus a few smart tips to minimize your chances of being audited.
Why You Should Care About IRS Audit Triggers
The IRS audited just 0.4% of individual returns in 2023, according to CNBC. But that number rises significantly for high earners and those who fall into common risk categories. The IRS’s compliance programs are designed to flag unusual patterns, omissions, or misstatements that indicate potential fraud, misreporting, or negligence.
Even if your tax return is honest and accurate, certain behaviors or errors can trigger additional scrutiny. Being proactive and understanding these triggers can save you from the hassle of an audit.
Top 10 IRS Audit Red Flags
1. Earning a High Income
The IRS tends to focus its audit resources on individuals earning more than $500,000 per year. According to CNBC, high-income earners are more likely to have complex returns, multiple income streams, and opportunities for aggressive deductions — making them a prime target. The higher your income, the higher the likelihood of an audit.
Tip: If you earn a high income, maintain thorough records of all income, deductions, and supporting documentation to justify your claims.
2. Claiming Excessive, Unusual, or Suspicious Deductions
Large deductions relative to your income can raise eyebrows, especially if they’re out of proportion to industry norms or prior returns. For example, claiming $50,000 in charitable donations on a $60,000 income may prompt an IRS review.
Tip: Be prepared to provide receipts and documentation for all deductions, particularly those that are higher than average.
3. Underreporting Your Income
Failing to report all your income is one of the most common audit triggers. The IRS receives copies of W-2s, 1099s, and other forms directly from employers, clients, and financial institutions. If the income you report doesn’t match what the IRS sees, it’s a red flag.
Tip: Double-check your records to make sure you include all income — even from side gigs, freelance work, or investment gains.
4. Deducting Home Office Expenses
While home office deductions are legitimate for self-employed individuals, they’re often abused. Claiming an unusually large percentage of your home as a business office or writing off personal expenses as business-related can trigger scrutiny.
Tip: Make sure your home office meets the IRS’s requirements — it must be used regularly and exclusively for business purposes.
5. Regularly Writing Off Business Expenses
Like home office deductions, excessive or suspicious business expenses — such as meals, travel, and entertainment — can raise red flags. This is especially true if your expenses seem inconsistent with your business’s revenue.
Tip: Keep detailed receipts and logs to prove that your business expenses are both ordinary and necessary, as required by the IRS.
6. Conducting Many Cash Transactions
Cash-intensive businesses (like restaurants, salons, or retail shops) often attract IRS attention because of the higher risk of unreported income. If you deposit or withdraw large sums of cash or don’t properly document cash payments, you could face an audit.
Tip: Maintain clear records of all cash transactions and consider depositing all cash into your business account to create a paper trail.
7. Involvement in Foreign or Offshore Accounts
With stricter reporting requirements for foreign accounts under the Foreign Account Tax Compliance Act (FATCA), the IRS closely monitors taxpayers with offshore holdings. Failing to report foreign bank accounts, investments, or income can lead to penalties and audits.
Tip: Disclose all foreign accounts and assets on your tax return and file the required FBAR (Report of Foreign Bank and Financial Accounts) if applicable.
8. Misusing Filing Status or Claiming Improper Exemptions
Claiming the wrong filing status or listing dependents you’re not entitled to can get you flagged. For example, two divorced parents claiming the same child as a dependent or someone filing as “Head of Household” without meeting the qualifications.
Tip: Verify that you meet the criteria for your filing status and have documentation (like birth certificates, custody agreements, or proof of support) for your claimed dependents.
9. Mistakes or Missing Information on Your Tax Return
Even simple errors — like math mistakes, incorrect Social Security numbers, or missing forms — can trigger a review. The IRS’s systems are designed to detect inconsistencies and omissions.
Tip: Double-check your return for accuracy, or use professional tax software or a tax preparer to minimize mistakes.
10. Being Self-Employed or Running Your Own Business
Self-employed individuals and small business owners are naturally subject to more scrutiny because their income and expenses aren’t verified by third-party employers. High deductions, losses, or inconsistent income can all raise questions.
Tip: Keep meticulous records of income and expenses, and avoid mixing personal and business finances.
Tips to Steer Clear of IRS Audit Triggers
While you can’t eliminate your audit risk entirely, you can significantly lower it by being diligent and careful when filing your taxes.
✅ Keep Accurate and Detailed Records
Maintain receipts, invoices, and logs for every income source and deduction you claim. The more organized your records, the easier it will be to defend your return if the IRS asks questions.
✅ Report All Sources of Income
Even small amounts of income, like side gigs or investment interest, should be reported. The IRS likely already has records of them — and underreporting will put your return under scrutiny.
✅ Be Conservative With Deductions
Only claim deductions and credits you’re truly eligible for, and don’t inflate expenses. If something seems questionable, seek professional tax advice.
✅ File an Accurate, Complete Return
Take the time to ensure your return is correct and all required forms are included. If you’re unsure about something, working with a tax professional can help avoid costly mistakes.
Why Awareness Matters
Understanding these common IRS audit triggers isn’t about fear — it’s about being prepared and responsible. As the IRS continues to improve its enforcement technology and focus on high-risk taxpayers, it’s more important than ever to know what could raise a red flag. By staying organized, honest, and informed, you can lower your chances of an audit and file your taxes with confidence.
No one likes the idea of an IRS audit — but being aware of the red flags and taking steps to avoid them can save you from unnecessary stress and financial strain. Whether you’re self-employed, a high earner, or just filing a simple return, knowing what the IRS looks for is key to staying on their good side.
If you’re unsure whether your tax return has any potential audit triggers, consider speaking with a qualified tax professional like Vyde. They can review your situation, ensure compliance, and help you keep more of what you earn while minimizing risk.
Here’s why Vyde is the perfect tax partner for you:
- Expert audit prevention — We know exactly what the IRS looks for and help you avoid costly mistakes.
- Personalized guidance — Whether you’re a freelancer, business owner, or high-income earner, we tailor our advice to your unique needs.
- Accurate, stress-free filing — We handle the numbers, paperwork, and details so you can focus on what you do best.
- Proactive support — We help you plan ahead and stay compliant year-round — not just at tax time.
Don’t wait for the IRS to come knocking — take control of your tax filing today. Stay informed, stay compliant, and protect yourself from unnecessary audits with Vyde by your side.
